ST. LOUIS, MISSOURI, US — Despite solid underlying business performance in the period, Bunge Ltd. sustained a loss in the first quarter of fiscal 2020, dragged down by approximately $385 million of temporary mark-to-market losses on forward hedges.
Bunge posted a loss of $184 million in the first quarter ended March 31, which compared with income of $45 million, equal to 26¢ per share on the common stock, in the same period a year ago. Net sales fell 7.7% to $9.17 billion from $9.94 billion.
Bunge’s share price fell 14% in mid-day trading on May 6, to $32.68, after closing at $37.94 the day before.
“Our underlying business performed well, and we’re seeing the impact of the strength of our new operating model, which is allowing us to quickly adapt to changing market conditions and customer needs,” Gregory A. Heckman, chief executive officer, said during a May 6 conference call with analysts. “In Agribusiness, we were able to capitalize on several key opportunities with notably strong performances in softseed crush, China soy processing and grain origination in Brazil, as farmer selling increased with the devaluation of the Brazilian real. Edible Oils produced a strong quarter, benefiting from good demand in an environment of relatively tight vegetable oil supply. The negative direct impacts of COVID-19 were limited in the quarter, as lockdowns and restrictions varied by region.”
Bunge sustained a loss of $127 million within its Agribusiness unit in the first quarter, which compared with EBIT of $141 million in the same period a year ago. Agribusiness volumes were 33.3 million tonnes, down 3.3% from 34.43 million tonnes in the first quarter a year ago. Sales were $6.33 billion, down 8.6% from $6.92 billion in the first quarter of 2019.
“Agribusiness results in the quarter were impacted by $385 million of mark-to-market losses on forward hedge contracts, of which the majority is expected to reverse over the course of the year,” said John W. Neppl, executive vice president and chief financial officer. “In Oilseeds, average soy processing margins were lower in all regions compared to a strong prior year, with the exception of China, which benefited from tight soymeal supplies and reduced bean availability. Average softseed processing margins were higher in all regions versus a year ago. As COVID-19 began to spread globally, concerns about soybean meal availability caused global oilseed processing margins to spike toward the end of the quarter. As a result, we incurred approximately $100 million of mark-to-market losses related to forward oilseed crushing contracts. In addition, as vegetable oil values declined during the quarter, we recorded a mark-to-market loss of $195 million on forward hedges held against deferred fixed price sales to our downstream edible oil customers. As we execute on these contracts in the coming quarters, we expect these timing losses to reverse.”
Results in Bunge’s grain business, meanwhile, primarily were driven by origination in Brazil, as the pace of farmer selling accelerated in response to an increase in local prices caused by the devaluation of Brazilian real. Ocean freight also had a strong quarter, benefiting from excellent execution, Neppl said. But he added that results were impacted by approximately $90 million mark-to-market losses, primarily related to forward bunker fuel hedges driven by the decline in global energy prices.
EBIT of the Bunge Edible Oil Products division was $46 million, down 23% from $59 million in the first quarter of 2019. Sales were $2.32 billion, up 3.8% from $2.24 billion.
“While the COVID impact was relatively limited to the segment in total as lockdowns and restrictions vary by region, we started to see reduced demand from both foodservice and biodiesel channels toward the latter part of the quarter,” Neppl said. “We expect to see a more pronounced negative impact in Edible Oils in the second quarter.”
EBIT of the Milling Products division totaled $18 million in the first quarter of 2020, down 19% from $22 million a year ago. Net sales decreased to $416 million from $426 million.
“In Milling, improved performance in Brazil, which benefited from higher volumes from food processors, was more than offset by lower results in North America due to the decrease in US margins and lower corn yields,” Neppl said.
Looking ahead to the rest of fiscal 2020, Heckman said COVID-19’s impact on the global economy makes visibility difficult, but Bunge expects 2020 earnings per share to be lower than forecasted earlier in the year.
“Agribusiness is positioned to perform well, given the strong start to the year and the soy crush capacity we have hedged into the third and fourth quarters,” he said. “However, results in Edible Oils will be lower due to COVID-19-related demand interruptions in foodservice and biofuels. Also, lower ethanol prices and foreign exchange volatility will materially reduce results in our Sugar and Bioenergy JV.”
Additionally, Heckman said Bunge continues to make progress on optimizing its portfolio. He pointed to the company’s recent agreement to sell 35 US interior grain elevators to Zen-Noh Grain Corp. for approximately $300 million as an example of such progress.
“This strategic effort supports Bunge's global value chain model and retains our strong presence elsewhere in the US grain marketplace,” he said. “We’ll continue to actively participate in global grain trading and distribution, anchored to our Center Gulf and PNW port terminals and continue to support Bunge’s US soy processing and milling businesses. Not only will this transaction allow us to reduce costs and operate more efficiently, we’ll reinvest the proceeds in the higher returning areas of the company and strengthen our balance sheet. I’m extremely proud of the team for executing this deal in this environment and market; really well done.”